T2S competition is an opportunity, says Benito
The competition that will be introduced by the European Central Bank’s (ECB’s) Target2-Securities (T2S) project among CSDs is an “opportunity” said Jesús Benito, chief executive at Iberclear. In simplifying the post-trade infrastructure of Europe, T2S is prompting new competitive forces, market entrants, challenges and even creating new words.
“T2S will bring us full competition among different CSDs and that is an opportunity,” said Benito. “I heard a new word; ‘coopertition’. It’s a combination of cooperation and competition. And that sums up what we are doing in our joint venture with Clearstream, which focuses on cross-border asset servicing. The world is changing and we have to be flexible.”
T2S is the ECB’s project to harmonise Europe’s clearing infrastructure and make it more efficient. Begun in 2006, the project will be phased in from June next year. The project has a significant political aspect, as it is seen as a means of driving European integration. Mario Draghi, president of the ECB, described T2S earlier this year as the necessary platform for setting up a single European market for securities services.
However, panellists in yesterday’s session on the future of T2S expressed concerns about the uncertainties still affecting the project. “How the CSDs will interact hasn’t been carefully thought out,” said Robert Scott, head of custody and collateral services at Commerzbank. “We are still to see different models. People are starting to think about collateral and the implications far more than they ever did. What about the pricing structures? Whilst the headline rates will be lower, we still have no transparency on what the overall pricing will be.”
Scott added that the transition of the T2S project from one run by the ECB to one largely directed by the market will also bring uncertainties, while other aspects, such as the recovery process at the CSDs, remain unclear and some are charging extra costs for T2S.
“It’s not going to be easy,” he said. “We will go through a long discovery process as we do the testing for wave one [of migration]. From a client perspective, there’s a lot to bear out from the costs and the benefits. Yes, we see the headline rates, but what does it mean when you bundle it with the service offering overall? There’s a lot of lessons to be learned before we go beyond T2S into asset servicing.”
Valerie Urbain, chief executive at Euroclear France, Belgium, Nederland, added that T2S offered a harmonised solution for settlement, but different asset servicing practices would remain as long as there were different legal systems in each country.
“It has taken too much time,” said Marc Bayle, director general, market infrastructure and payments at the ECB. “However, there is no cost overrun so far. The key is to have coordination; that’s why it’s taking time. You are moving the full market to a new environment so you cannot have mistakes. It’s not that long for such a big project, putting all the securities of Europe onto a new platform. The market will change dramatically. Each CSD will have its own flavour. There are lots of challenges ahead for us all. But T2S will be a success.”